What will the Property Practitioners Bill mean for the industry?

Some of the proposed changes are positive and others will, inevitably, be contentious. These are some of the most dramatic changes to the regulatory framework currently in existence.

Who or what is a “property practitioner”?

The definition of “estate agent” in the current Act is open to some interpretation, but, in the main, refers to a person or entity that markets, sells or lets immovable property on behalf of another person for some form of gain.

The new Bill expands this definition extensively. In terms of section 1, a “property practitioner” will now include a bond broker, home inspector, facilitator of an agreement of sale or lease (including a Homeowners’ Association), a seller of timeshare or fractional title, a property manager and a property developer.

The only exclusions from this definition are attorneys and candidate attorneys, sheriffs of the court, a person offering property practitioner services but not in the normal course of his business, and a person selling his own property (but excluding a property developer).

Crucially, the requirement that the person earns some sort of gain for their services has been omitted from the definition. This means that even persons performing the above functions without reward may be deemed to be property practitioners, and therefore subject to the regulatory requirements.

Establishment of the Office of the Ombud

The Bill requires that correspondence, legal agreements, copies of advertising and marketing materials must be retained for 10 years. Mercifully, these documents may be stored electronically.

Section 20 of the Bill brings real estate in line with other service industries like insurance and banking, as it establishes the Property Practitioners Ombud. This is an important development as it takes the responsibility for consumer complaints away from the regulatory authority and vests this in an independent body, as is the case in the financial services industry.

The Ombud will receive complaints from the public against property practitioners and follow a prescribed process in dealing with these complaints. The Bill allows for a mediation procedure and an adjudication procedure, in the hope that mediation will dispose of many less serious complaints quickly and efficiently.

Also of note with regard to the Ombud’s authority is that he may hear disputes between property practitioners, but only if both parties agree to this.

Expanded powers of inspectors

Following the debacle involving the unlawful seizing of documents in the Auction Alliance case, the new Bill seeks to imbue inspectors of the regulatory authority with the power to enter any premises (other than the private home) of a property practitioner and to seize certain articles, without a warrant.

This is a potentially dangerous power to put into the hands of persons who may not be conversant with constitutional rights and, if this provision passes into law, it is likely to generate much litigation against the authority.

Prescription of claims against the Fidelity Fund

The three-year period for extinctive prescription of claims that is provided for in the Prescription Act 68 of 1969 is specifically codified in the Bill. The period starts running from the date of rejection of the initial claim. Persons with rejected claims would therefore need to start their legal process within three years in order to avoid losing their right to claim.

Repayment of remuneration unlawfully earned by a property practitioner

The existing Act prohibits a person from offering estate agency services whilst not in possession of a Fidelity Fund Certificate (FFC), the so-called estate agent “licence”. This Act goes on to state that a person who is not in possession of a current FFC is not entitled to commission.

The new Bill preserves the spirit of the existing Act in this regard, but goes one step further in requiring that any remuneration earned by a property practitioner whilst not in possession of an FFC must be refunded to the person who provided the remuneration, on demand.

Disqualification from issue of a FFC

Section 49 deals with instances in which a property practitioner is automatically disqualified from being issued an FFC by the authority, and thereby prohibited from trading lawfully. The expansion of the instances listed in this section is sure to cause major consternation.

All of the instances mentioned in the current Act are retained, and there are some interesting amendments and additions.

Section 20 of the Bill brings real estate in line with other service industries like insurance and banking, as it establishes the Property Practitioners Ombud.

On the positive side, a five-year time frame has been placed on prior contraventions of the Act and dismissals from a position of trust for misconduct. This means that such instances occurring more than five years from application for a FFC will be of no force or effect as regards disqualification. Persons in this boat will no longer have a sword hanging over them forever in terms of practising as an estate agent.

Another softening of the current disqualification criteria is found in the amendment of the instance where a person is found guilty of an offence involving an element of dishonesty. The phrase “for which such person has been sentenced to imprisonment without the option of a fine” has been added, thus eliminating minor offences of dishonesty from automatic disqualification.

On the other hand, three new additions are likely to make many property practitioners very unhappy.

The first is the requirement to be in possession of a tax clearance certificate. It is highly unfair and probably not legally sustainable to disqualify a person from being issued with a FFC where they have a genuine dispute with SARS, and therefore cannot obtain a tax clearance.

Secondly, being on the Treasury tender defaulters list as a provider (even as a director, member, trustee, partner or shareholder) is now an instance for disqualification. The practicality of this provision is questioned as it will be very difficult for the authority to determine who the shareholders of public companies on that list are.

Thirdly, a property practitioner who is not is possession of a BEE certificate is automatically disqualified. This provision is unlikely to remain in its current form as the new schedules to the BBB-EE Act deem an enterprise with an annual turnover of less than R10 million to be an “exempt micro-enterprise” (“EME”). Such EME is not permitted to be issued with a BEE certificate, even if it required one.

Record-keeping by property practitioners

Whilst not so controversial, the time period for keeping records and the types of documents that must be retained in terms of section 54 are likely to cause logistical problems.

The Bill requires that correspondence, legal agreements, copies of advertising and marketing materials must be retained for 10 years. Mercifully, these documents may be stored electronically.

Mandatory disclosure form

Following promotion of the use of such a form as best practice, its compulsory use has now been legislated.

A property practitioner may not accept a mandate to sell or let a property without a mandatory disclosure from the seller or landlord. This applies to both commercial and residential properties.

The signed mandatory disclosure will form part of the sale or lease agreement. If a written mandatory disclosure is not included, then the agreement will be interpreted as if no defects or deficiencies were disclosed.

Some of the provisions in the Bill are unlikely to survive a predicted onslaught of comments from the industry.